Just returning from Washington, D.C., where tax reform is on the front burner, I can attest that California, for all of its innovation and creativity, is not of particular concern. With the multitude of emergency situations at home and around the world, California’s self-inflicted wounds are seen for what they are and we could begin to pay on our next income tax return.

Having dodged the elephant in the room, Obamacare repeal, replace or reform, the Republican-controlled Congress believes they have to do something, and tax reform is it. Federal outlay for this program and potential expansion of services will heavily influence current and future spending priorities and hence, tax reform and budget negotiations.

We met with congressional leaders and administration officials and found much to be liked on the stimulus side of the package. Lowering the corporate tax rate, allowing for repatriation of off-shore dollars, and immediate expensing of equipment will have a positive effect on business planning and stimulate job creation to business-friendly states.

Eliminating the Alternative Minimum Tax, middle-class tax reductions, streamlining the tax code and simplifying reporting are worthy goals. But due to static analysis, and congressional and Senate rules, attempts to encourage business development and investment, and to allow taxpayers to keep more of their hard-earned dollars must be “paid for.”

And that’s where “California Dreaming” D.C. style comes in to play. Elimination of the State and Local Tax Deduction that is envisioned to “pay for” the reforms will hit wage earners in our state hard.

Deductibility of state income tax and property taxes (the local tax) prevents double taxation. But in the Washington view, it also allows high tax states such as California to mitigate their own putative, highest-in-the-nation, state income tax rate.

As we know, in many parts of our state, the middle class means those with a household income of $50,000 to $250,000. This is the exact group that could be hardest hit with higher taxes and/or loss of deductibility, in spite of the increase in the standard deduction being discussed.

Specifically, the ability to deduct local property taxes as well as mortgage interest provides a strong incentive for first-time and move-up home buyers by reducing the overall tax burden and cost of owning a home. This is critically important in California, which boasts some of the most expensive housing in the nation.

However, many low-tax states view these exemptions as a subsidy for our lunacy and/or liberal spending policies. Meeting with congressional, Senate and administration officials and understanding the strong influence of many smaller states working with the present administration, California’s concerns could be ignored or marginalized. Our aggressive promotion of heavily federally subsidized health care, legalizing recreational marijuana while simultaneously declaring a sanctuary state, and exhibiting a general failure to cooperate with the Trump administration or the Republican-controlled Congress is diminishing our state’s influence. While both parties in our Congressional delegation are pressing for changes to the initial “road map” or plan, a bit more cooperation at this time from our Legislature would be helpful.

While the administration is not inclined to do our rogue state any favors, it may be that with negotiations under way the “high-tax states” could get a break on the property tax deduction and a negotiated maximum deduction on the state income tax. After all, our democratic system requires a majority of votes in each house, and Democrats are not seen as potential votes unless the Republicans hit the magic number without them. All of which helps to strengthen the negotiating hand of our 14 congressional Republicans and representatives from other large states.

To summarize, in Washington, D.C., California is viewed as just another less critical, problem rogue nation. In light of the hurricane devastation, tragedy in Las Vegas, nuclear saber-rattling of North Korea and Iran, and monitoring hot spots for terrorism in our nation and around the world, our state’s politicized tantrums appear ridiculous. It would be beneficial if our own state legislators and governor vowed to rejoin the United States at this turbulent time and save the partisan posturing for another day. If not, our rogue nation may be cut adrift with tax reform.

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